
Gaining and Sustaining Competitive Advantage. Firm’ strategy should develop and exploit valuable, rare and costly-to-imitate resources, leading to sustained competitive advantage and above normal performance. Preliminaries. Strategy formulation , not implementation
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Firm’ strategy should develop and exploit valuable, rare and costly-to-imitate resources, leading to sustained competitive advantage and above normal performance
Company Profile( SWOT )
Mission
Objectives
Strategies
Tactics
Industry & Environmental Analysis ( SWOT )
“Enhancing quality of life through an integrated health service organization based on a balanced program of patient care, education, research and community service.”
“To bring inspiration and innovation to every athlete in the world.”
‘The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit”.
Dell's mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of:
The University of Nevada, Las Vegas, located in the vibrant and dynamic city of Las Vegas and surrounded by the Mojave Desert, is emerging as a premier urban university. UNLV’s development embraces the traditional values of higher education adapted for the global community of the 21st century. The university increasingly will concentrate its resources on programs that are student centered, demonstrably excellent, and responsive to the needs of the local and regional community.
UNLV promotes an environment that encourages the full personal and professional development of those it serves and of those who serve the university. UNLV assists students in meeting the intellectual and ethical challenges of responsible citizenship and a full and productive life through opportunities to acquire the knowledge and common experiences that enhance critical thinking, leadership skills, aesthetic sensitivity, and social integrity.
The university provides traditional and professional academic programs for a diverse student body and encourages innovative and interdisciplinary approaches to teaching, learning, and scholarship. Recognizing the individuality of each student, UNLV simultaneously engenders collegial relationships and a sense of community among its members. UNLV embraces the interdependence of quality instruction, scholarly pursuits, and substantive involvements in campus and community life.
The university offers artistic, cultural, and technical resources and opportunities to the broadest possible community. It promotes research programs and creative activities by students and faculty that respond to the needs of an urban community in a desert environment.
UNLV is committed to developing a synergy between professional and liberal studies, between undergraduate education and graduate programs, and between superior teaching and meaningful research. UNLV increasingly is a dynamic resource for, and partner with, the community that it serves.
The general strengths and weaknesses of a firm
Opportunities, threats, characteristics and trends of the industry and society
Organizational performance is a complicated concept – multiple methods, each with different uses and flaws
Note: these measures can be difficult to compute
and more appropriate to finance than
strategy. Our interest is in developing
an intuitive understanding – how they
compare, contrast and can be used.
+ current assets
+ fixed assets
- net other assets (other assets – other liabilities)
- non-interest bearing current liabilities (A.P.)
Invested capital
EP = Invested capital x (ROIC – WACC)
note: ROIC and WACC are percentage terms.
If the difference is positive, EP will also be
positive.
market value of equity
+ market value of debt
- economic book value
MVA
note: this measure is also difficult to calculate,
especially determining the amount invested
in the firm since inception.
q = firm market value / firm book value
where market value of common stock
+ market value of preferred stock
+ book value of short-term debt
+ book value of long=term debt
firm market value
Company Profile( SWOT )
Mission
Objectives
Strategies
Tactics
Industry & Environmental Analysis ( SWOT )
Number of competing firms, homogeneity of products, cost of entry and exit
Industry Structure
Price taking, product differentiation, tacit collusion, exploit market power
FirmConduct
Firm: above, normal, belowSociety: social welfare implications
Performance
Large number of firms, homogeneous products,low cost of entry and exit
Industry Structure
Price taking
FirmConduct
Firm: normalSocial welfare: maximized
Performance
Industry Examples?
Large number of firms,heterogeneous products,low cost of entry and exit
Industry Structure
Cost leadership,Product differentiation
FirmConduct
Firm: above normalSocial welfare: less than perfect competition
Performance
Industry Examples?
Small number of firms,costly entry and exit
Industry Structure
FirmConduct
Many options, including collusion
Firm: above normalSocial welfare: less than monopolistic competition
Performance
Industry Examples?
Only one competing firm,costly entry
Industry Structure
FirmConduct
Uses market power to set prices
Firm: above normalSocial welfare: less than oligopoly
Performance
Industry Examples?
Market growth rate
Number and size of rivals
Scope of rivalry
Number and size of buyers
Number and size of suppliers
Substitute products
Ease of entry / exit
Distribution channels
Economies of scale
Learning curve
Capacity utilization
Average industry profitability
Pace of technological change
Industry Characteristics AnalysisPeople or groups who have an interest, claim, or stake in how well the firm performs
shareholders managers
employees customers
suppliers government
unions community
general public
What determines the degree of industry competitionand profitability?
Threat ofentry
Threat of rivalry
Threat ofsuppliers
Industry profitability
Threat of buyers
Threat of substitutes
(Technology, know-how, access to raw materials, geographic locations, learning curve)
* Some disagreement among scholars
calculators vs. slide rules
tape b/u vs. CD burner
Honda vs. Toyota
Company Profile( SWOT )
Mission
Objectives
Strategies
Tactics
Industry & Environmental Analysis ( SWOT )
Determinants of success may differ depending on the stage of industry evolution
Emerging
Newly formed – innovations,
changes in demand, needs
Rapid increases in capacity and
unit sales, dominant technology
emerges
Growth
Maturity
Slowing growth rate, increased
competition, experienced
customer base.
Decline
Consistent decline in unit sales,
overcapacity
What does it take to succeed in the
Introduction / Emerging stage?
Industry Examples?
What does it take to succeed in the growth stage?
Industry Examples?
What does it take to succeed in the mature stage?
Industry Examples?
What does it take to succeed in the declining stage?
Industry Examples?
Strategic group – a subset of firms in an industry that appear to compete on similar dimensions.
Examples: Mercedes, Acura, Lexus
Timex, Casio, Polar
Nike, New Balance, Asics
Plotting a strategic group map:
(1) Identify relevant dimensions
(2) Locate firms
(3) Group nearby firms
(4) Look for potential opportunities
Monitoring early signals, changes or trends in the firm’s external environment; anticipating or forecasting these trends; assessing how these changes or trends will affect firm operations.
Major components:
A firm’s strategy should exploit firm strengths while avoiding or correcting weaknesses
numerous resources are inelastic
other contributing factors
broad definition of ‘productive resource’
Other theories of the firm
* Assumes firm is organized to exploit resource
A cost-leadership strategy attempts to gain competitive advantage by reducing production or service costs below those of competitors
(learning curve v. economies of scale)
(land, labor, capital, raw materials)
(other than what is used for production)
(choices about which products/services to offer)
Factors of production
Technological software
Diseconomies of scale
Policy choices
Economies of scale
Technological hardware
Cost Leadership and VRIO FrameworkWhich Sources of Cost Advantages Are Rare?More likely to be rare
Less likely to be rare
Factors of production
Policy choices
Technological hardware
Learning curve
Diseconomies of scale
Economies of scale
Cost Leadership and VRIO FrameworkWhich Sources of Cost AdvantagesAre Costly to Duplicate?Costly to duplicate
Less costly to duplicate
Technological software
Factors of production
Policy choices
Technological hardware
Learning curve
Diseconomies of scale
Economies of scale
Why Are These Sources Costly to Duplicate?(few layers, small staff, narrow range of business)
(close supervision, quantitative goals, cost-leadership orientation)
(reward for cost reduction, incentives for all)
A product differentiation strategy attempts to gain competitive advantage by increasing the perceived value of products or services relative to that of the competition
Conceptual
Empirical
Distribution channels
Intra-firm linkages
Timing
Location
Service and support
Inter-firm linkages
Product customization
Product mix
Consumer marketing
Product complexity
Product features
Product Differentiation and VRIO FrameworkWhich Bases Are Costly to Duplicate?Costly to duplicate
Less costly to duplicate
Product differentiation leads to increased sales, which lead to economies of scale, learning and other cost reductions
Empirical research supports dual strategies
Porter has backed off the “stuck in the middle” argument
The Cons…..
Requires different organizational structures
Management control systems differ
Differences in compensation policy design
Implementing Both Cost Leadership andProduct Differentiation StrategiesTypes of alliances, sustained competitive advantage, and “cheating” in alliances.
Alliances
Some examples…
Evaluation of competitive advantage follows VRIO framework.
Strategy should neutralize threats,exploit opportunities and strengths,address firm’ weaknesses
Vertical integration
Cost leadership
Product differentiation
Flexibility
Tacit collusion
Generic Strategies
Corporate strategies
Strategic alliance
Corporate diversification
Mergers and acquisitions
International strategies
Types of Strategies